A “For Rent” sign hangs in front of an apartment complex in Washington DC on January 24, 2022.
Stephanie Reynolds | AFP | Getty Images
The scorching rental market is finally starting to cool, along with the rest of the homes.
Rents are still higher than they were a year ago, but profits are shrinking as landlords lose pricing power in the face of inflation.
According to Realtor.com, rents rose 4.7% in October compared to October 2021. The median rent in the US was $1,734.
“Our data shows that we are finally starting to see some moderation from the double-digit rent growth we experienced at the height of the pandemic,” said Daniel Hale, chief economist at Realtor.com. It’s still a bit too early to officially say it’s on track, but the data points to a promising recovery towards a normal seasonal slowdown, lagging behind the past few years of astronomical price gains. It suggests that it is possible.”
Despite more tenants struggling to pay their rents, a majority of landlords will continue to raise rents next year, albeit by a margin, according to a Realtor.com fall survey. said.
Rents are up 23.5% from October 2019, before the Covid19 pandemic hit. The biggest rise in rent was for two-bedroom units, as tenants sought more space in the new work-from-home economy.
Annual rent growth has now slowed for the ninth straight month and has been in the single digits for the past three months. But rents are still rising faster than they were just before the pandemic started in March 2020.
Despite falling prices, more renters are considering moving because of affordability. A Realtor.com survey found that 69.5% of those who said their rent had increased said they were considering looking for a cheaper property, up from 66.2% of them in July.
The study covers both multi-family and single-family rentals. Other reports say apartment rents are cooling faster than single-family home rents.
Single-family rent growth has slowed over the past five months, but is still in the low double digits, according to CoreLogic. In September, the latest month for which data are available, rents rose 10.2% year-on-year, up from almost 14% growth in April this year, when interest rates actually rose.
“High mortgage rates may be putting potential homebuyers on hold and staying renters, putting pressure on rents,” said Molly Boesel, chief economist at CoreLogic. However, monthly rent change was negative in September, resuming the typical seasonal pattern for the first time since 2019, which could indicate that rent growth has begun to normalize. ”
The pressure on multifamily rents is reaching both builders and investors. A report by the National Association of Home Builders found that developer confidence in the multi-family housing market plummeted in the third quarter of this year. This report tracks both condominium production and occupancy rates.
The number of multifamily units under construction is at its highest level in almost 50 years, and construction spending continues to rise, but developers are starting to see signs of a slowdown.
According to the report, “They cited the high cost of materials and land as the main reasons for the decline in confidence, along with weakening funding conditions given the Federal Reserve’s recent monetary policy. and have the greatest impact on affordable housing projects.”
NAHB now predicts a significant decline in multifamily construction in 2023.